The World's Biggest Independent Energy Firm Is Eyeing Significant Uptake in Production by 2017

The world’s leading independent oil and gas company, ConocoPhillips (NYSE:COP), has recently announced that it will spend $16.7 billion as capital expenditure in 2014, showing an increase of around $900 million from last year. Nearly 39% of the total capital expenditure will go towards the high margin development drilling program, of which 90% will be allocated to North America. Overall, around 55% of its total capital expenditure will flow towards its North American operations while the rest will be invested in its international operations.

The company has also announced that it will invest $5.8 billion on development projects around the world, including those in Australia and Canada, to increase its production by 400 mboed in the next four years.

The company will invest heavily in the lower 48 states and is eyeing significant increase in production from Alaska, Canada, the UK, Australia and Norway in the next four years.

In this article, I will briefly discuss some of the company’s ongoing projects that will drive its growth in the coming years.

The Lower 48

Although North America’s share of ConocoPhillips’s total capital expenditure has fallen from 60% last year to 55% in 2014, the business will ramp up investments in the liquids-rich unconventional plays in the lower 48 states.

ConocoPhillips has planned to raise its investments in drilling programs of some major lower 48 states to $4.3 billion. This region includes some of the leading oil and gas producing plays such as Eagle Ford, Bakken Shale and the Permian Basin. These three account for a third of the U.S. total oil production and are on track to to produce around 1.5 million boed by 2016.

Houston based EOG Resource (NYSE:EOG), with 639,000 acres, has the largest positions at Eagle Ford and accounts for 25% of the total production from the region. Marathon Oil (NYSE:MRO) is another leading player at Eagle Ford with more than 230,000 net acres of assets. The natural gas giant Chesapeake Energy (CHK), is also increasing its focus on Eagle Ford and has targeted to cross the 100,000 barrels of oil equivalents per day (mboepd) benchmark from this region by the end of the year.

In the previous quarter, ConocoPhillips reported a 40% year-over-year increase in production from Eagle Ford, Bakken Shale and the Permian Basin plays to 214 mboed. This included a 66% increase in production from Eagle Ford, which represents a quarter of the total lower 48 production, to 126 mboed.

These plays are clearly an integral part of the company. The three, along with the business’s Latin American operations, represent the biggest operating area for the oil producer with production of 499 mboed.

In 2014, ConocoPhillips will spend nearly $870 million for exploration and appraisal of unconventional plays North America, as Niobrara and Duvernay. For exploration of conventional resources in the international offshore regions and the Gulf of Mexico, the company has set aside $1.3 billion.

Alaska and International Plays

For Alaska, ConocoPhillips has increased its capital expenditure from last year due to the ongoing CD-5 development and the uptake in activity coming from the More Alaska Production Act (SB21).

In third quarter, ConocoPhillips’s production from the Alaska region increased by 2 mboed from the corresponding quarter last year to 178 mboed in third quarter 2012. Although the production numbers are hardly impressive with little increase in growth, the company will bring additional rigs in Alaska in 2014 following the SB21. As a result, there is going to be a meaningful increase in production from Alaska in the coming quarters. By 2017, ConocoPhillips believes that it will be producing at a rate of 600 mboed from Alaska, Canada and Norway.

In November, ConocoPhillips announced that it has started gas production from the UK’s Jasmine field, the country biggest field which was discovered back in 2006. ConocoPhillips holds 36.5% stake in the project, along with Eni (NYSE:E) with a 33% stake and the BG Group (BRGYY) with 30.5% stake. ConocoPhillips considers this as one of its most productive fields. Its production facility can produce 140 mboepd (gross) while ConocoPhillips is targeting net production of 40 mboepd in 2014, which is higher than its current production from Bakken.

Besides the Jasmine field, ConocoPhillips also has interesting prospects in Norway. Its current projects here can power production for the next four decades. The firm is the operator of the Greater Ekofisk Area with a 35.1% stake with others such as Total (NYSE:TOT), Eni and Statoil (NYSE:STO). The region has been continuously reporting improvements in terms of oil recovery. For ConocoPhillips, its projects in Norway will add high margin production of around 60 mboed by 2017.

Asset Sales

Meanwhile, ConocoPhillips will continue selling its riskier assets in the international markets to increase its focus on the unconventional plays in the U.S. discussed earlier in the article. Since 2012, ConocoPhillips has sold assets worth $12.4 billion. It has recently sold its Algerian business unit for $1.75 billion to Pertamina. In the last quarter, the business sold its Trinidad and Tobago’s Phoenix Park midstream assets as well as Clyden undeveloped oil sands leasehold in Canada. The company could raise nearly $9 billion from the sale of its interest in the North Caspian Sea and assets in Algeria and Nigeria.

Disclosure: This article was written by Sarfaraz A. Khan, with valuable contribution from Gohar Yousuf, research assistant at Half Bridge Business Review. Neither Sarfaraz A. Khan, nor Gohar Yousuf have any positions in the stock(s) mentioned in this article.

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